Georgia and China strengthen economic ties

In the absence of Euro-Atlantic guarantees for deeper economic and political integration, Georgia is further diversifying its cooperation with states outside the Western hemisphere. Over the last year, Georgia has particularly been strengthening ties with the People’s Republic of China, which seeks to increase its presence in the South Caucasus as part of its Silk Road Economic Belt. Due to declining Western involvement in the region, the U.S. and European Union have little reason to complain about Tbilisi’s new alignments. Nevertheless, anchoring China as a long-term player in the region will likely lead to a further decline of Western influence in Georgia.

BACKGROUND: Growing Chinese interest in the South Caucasus as a key point of intersection between Asia and Europe has over the last few years resulted in voluminous Chinese investment and intensified trade relations with the region. Especially Georgia has benefited from increased Chinese involvement. In 2014, China became Georgia’s fourth largest trading partner and its third largest foreign investor. Today, about 25 Chinese companies operate successfully in Georgia, most notably in the infrastructure, banking and agriculture sectors.

Relations between the two countries are now moving to a new level. In March 2015, China and Georgia announced the launch of a feasibility study on a possible free trade agreement. Such an agreement would not only bring about significant economic benefits for both countries – the Georgian government also sees it as a unique opportunity to position the country as a logistics hub that would attract more foreign businesses and result in investments from outside Europe. Although the free trade agreement with China would probably become the flagship of enhanced bilateral cooperation, it is by no means the only important project on the starting blocks. During a visit to China in early September 2015, a high-level Georgian delegation, led by Prime Minister Irakli Garibashvili, either discussed or launched several important new projects in the infrastructure and energy sectors.

So far, the cooperation between the two countries is mainly economically motivated. Nevertheless, China is also engaging in public diplomacy and educational exchanges. In late November 2010, China opened its first Confucius Institute in Georgia and in 2015, Tbilisi State University set up a Georgian Chinese and Culture Center. During the opening ceremony, Georgia’s Minister of Education and Science Tamar Sanikidze said, “Georgia and China have been cooperating for a long time already in various directions, including in the sphere of education. The opening of the center is yet another example of how our partner country cares for raising the quality of education.” Hence, closer political and cultural cooperation between China and Georgia only seems to be a matter of time.

IMPLICATIONS: Georgia’sdeepening relations with China come at a time of waning Western influence and engagement with Georgia. Although on the surface it may seem that Georgia’s Euro-Atlantic integration is moving ahead, not at least after signing the Association Agreement (AA) with the EU in June last year, the Georgian government is seemingly becoming increasingly impatient with both NATO and the EU. With increasing frequency, voices from the government’s Georgian Dream coalition urge NATO and the EU leadership to deliver “tangible results.”

The latest NATO Summit in Wales last year and the EU Eastern Partnership Summit in Riga in May were indeed rather disappointing: Georgia was neither given its long-awaited Membership Action Plan (MAP) with NATO, nor granted a visa-free travel regime with the EU. During her last visit to Washington in August 2015, Georgia’s Defense Minister Tina Khidasheli expressed her disappointment and said, “If NATO fails to deliver tangible results on Georgia’s membership path at its summit in Warsaw next year, it will be a very clear message that all those promises [made by the Alliance] are staying just on paper.” She was referring the NATO Bucharest Summit Declaration of 2008, in which NATO member states promised Georgia that it will become a member of the alliance.

For many Georgians, the West’s commitment is measured in terms of concrete outcomes – whether or not they will be granted a MAP with NATO or a visa-free travel regime with the EU. If these goals are not achieved in the near future, skepticism is likely to grow and people will “start to get disillusioned over Georgia’s prospect for integration into NATO and the EU,” Khidasheli added during her Washington visit.

Indeed, popular support for the Georgian government’s pro-Western course is already declining. While a large majority still favors Georgia’s integration into NATO and the EU, a representative poll by the National Democratic Institute (NDI) from May 2015 indicates that Georgians increasingly prioritize good relations with neighboring Russia, which retains substantial political and military pressure on Georgia. As recently as July 2015, Russian troops extended South Ossetia’s administrative boundary line by building new fences on Georgian territory.

Furthermore, the NDI survey shows that the Georgian population perceives jobs, inflation, rising costs and poverty as the most pressing issues, rather than Georgia’s Euro-Atlantic integration. This is not surprising in light of Georgia’s crumbling economy and unstable currency. On August 25, 2015, the Georgian lari (GEL) fell to its weakest against the U.S. dollar in more than 16 years.

While the Georgian government is unlikely to divert from its pro-Western course, it is under growing pressure to deliver security and prosperity to its citizens. Consequently, Chinese interest and investments in the country are welcomed by the Georgian authorities. Yet, the Georgian government may not only hope that Chinese involvement will lead to more jobs, a new export market, and ultimately to accelerated economic growth; it also appears that growing Chinese involvement is seen as a means to defy Russian aggression. So far the Chinese government has sought to distance itself from the problems revolving around Georgia’s territorial integrity. Nevertheless, Tbilisi likely hopes that Georgia’s security and stability will become a greater priority for Beijing once economic relations intensify further.

CONCLUSIONS: The Georgian government’s decision to launch a feasibility study on a free trade agreement with China came less than a year after the signing of the Association Agreement, which also foresees a Deep and Comprehensive Free Trade Area between Georgia and the EU. Although the timing may be a coincidence, it nonetheless sends out a strong signal to the West that Georgia is pursuing a new, pragmatic, foreign policy in which economic relations are at least as important as its more value-based Euro-Atlantic integration.

While China is not the only Asian country to which Georgia is reaching out at the moment, this relationship may be a particular source of disquiet in the West. The best bet for the U.S. and Europe to counter growing Chinese influence is to develop their own comprehensive strategy for the South Caucasus. It should be clear to both the U.S. and the EU that Georgia’s Euro-Atlantic integration needs much stronger support than is presently offered. Otherwise their power to shape developments in the region will further decline, which may play right into the hands of other major powers, most notably China, which is evidently stepping up its involvement in Georgia and the South Caucasus in general.

AUTHOR’S BIO:Carolin Funke is an independent analyst based in Germany. She was an intern for the Central Asia-Caucasus Institute & Silk Road Studies Program Joint Center in fall 2013.

The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.